The Hidden Tax: How Australian Firms Are Tolerating Capability Gaps That Destroy Value Every Day
You know that feeling when something's not quite right, but you've learnt to work around it? That project that always runs late. The team that's perpetually "under the pump". The high performer who just resigned—another one. The customer complaint that sounds eerily familiar.
What if I told you that three-quarters of Australian organisations aren't just experiencing these problems—they've normalised them?
Research by Professor Margaret Lindorff, published in the Journal of Vocational Education and Training, surveyed over 2,000 Australian managers and revealed something startling: 75% of organisations have significant skills gaps. But here's the real problem—most have stopped seeing them as problems at all.
Understanding Skills Gaps: The Foundation Issue
Before we go further, let's be clear about what we're discussing. The Lindorff research examined skills gaps: deficiencies in the workforce's current skills—the technical knowledge, leadership ability, communication competence, and professional expertise that employees need to perform their roles effectively.
These aren't minor inconveniences. Skills gaps create measurable damage across organisations. But here's what two decades of consulting experience reveals: skills gaps are often symptoms of something deeper.
"When we diagnose skills gaps in organisations, we frequently discover they're signals of broader organisational capability issues," says David Williams, Principal Consultant at Regional Capability Systems. "Someone lacks leadership skills—but why? Often because your organisation has no leadership development system. Teams lack technical skills—but why? Sometimes because your business model, structure or other factors makes it impossible to attract, develop or retain skilled people. Skills gaps are real and critical to address, but they're often the visible symptom of invisible capability deficits in how your organisation operates."
The Cost of "Just How Things Are"
The Lindorff research quantifies exactly what tolerance of skills gaps costs:
52% of organisations report increased employee stress due to skills gaps
39% have lowered staff morale
32% have lost high-performing employees
31% experienced reduced customer service standards
31% saw direct impacts on profits and performance goals
30% found their strategic planning compromised
17% lost market share to competitors
These aren't isolated incidents. These are the accumulated, compounding costs of what you've learnt to live with.
"When I walk into organisations for capability reviews, I often hear 'we've always struggled with this' or 'that's just our normal busy period,'" Williams reflects. "What they've actually done is normalise a skills gap—and often the organisational capability deficits underneath it—to the point where the cost becomes invisible.”
The Productivity Drain You Can't See
Here's what makes skills gaps so insidious: the costs are largely invisible day-to-day. You see people working hard—staying late, juggling priorities, stepping up, doing their best. What you don't see is both the skills deficit and what's often causing it.
That employee working 50-hour weeks? They might be compensating for skills they don't have. But dig deeper: Why don't they have those skills? Does your organisation lack clarity around the skill sit needs and the roles it deisgns? Is there a weak performance culture? Does your HRM system just do more of the same? Does your culture refuse to acknoweldge skill gaps?
That "all hands on deck" culture? It might be masking skills gaps. But ask: Why do these gaps persist? Is your business model unable to compete for skilled talent? Do your processes prevent people from developing skills? Does your leadership lack the capability to build skilled, high performing teams?
That project that never quite launches? Perhaps your team lacks the skills to execute it. But consider: Does your organisational structure enable skill application? Do your systems support it? Does your leadership create conditions for people to use their skills effectively?
"The Lindorff study confirms what I see across Australian workplaces: skills gaps create cumulative damage—to productivity, to morale, to psychological safety," Williams explains. "But my experience shows these skills gaps rarely exist in isolation. They're often symptoms of organisational capability deficits that training alone won't solve."
When "Busy" Becomes "Broken"
There's a critical difference between an organisation that's productively busy and one that's frantically compensating for skills gaps.
The research shows that more than half of organisations with skills gaps report increased employee stress. This isn't the productive stress of challenging work. This is the chronic stress of lacking the skills required for your role—often because the organisation lacks the capability to develop those skills.
Consider what creates persistent skills gaps:
No development systems: Your organisation lacks structured ways to build skills
Retention failures: You can't keep skilled people, so gaps persist
Poor recruitment capability: You can't identify or attract skilled candidates
Leadership skill deficits: Your leaders lack the skills to develop others
Structural barriers: Your organisation design prevents skill development or application
Business model constraints: You can't compete for skilled talent
You can address individual skills through training—but if the organisational capability to develop, retain, and deploy skilled people isn't there, you're fighting an endless battle.
The Psychological Safety Crisis
Psychological safety—the shared belief that the team is safe for interpersonal risk-taking—is foundational to high performance. But it collapses when employees:
Lack skills for their role and fear admitting it
Watch others struggle with skill gaps no one addresses
See high performers leave due to burnout from compensating for others' skill deficits
Face customers with service they know is substandard because the team lacks skills
Work in organisations that lack the capability to develop the skills they need
"Employees know when they lack skills, and they know when their organisation lacks the capability to help them develop those skills," Williams notes. "That's not just stressful—it's psychologically unsafe. They're set up to fail unless they heroically compensate. Neither is sustainable, and both destroy the psychological safety required for high performance."
When psychological safety erodes, so does everything else: the willingness to admit skill gaps, seek help, take on learning, collaborate, innovate, and ultimately, perform.
The Compounding Cost Model
Skills gaps don't cost you once—they cost you continuously, and the costs compound:
Immediate costs:
Reduced productivity (tasks take longer, errors increase when people lack skills)
Customer service issues (31% report this impact)
Employee stress and excessive overtime
Medium-term costs:
Loss of high performers (32% experience this) who leave rather than compensate indefinitely
Lowered morale (39% report this) from working alongside persistent skill deficits
Compromised strategic initiatives (30% affected) that require skills the organisation doesn't have
Long-term costs:
Lost market share to competitors (17% report this)
Reduced organisational capability to attract and retain skilled people
Embedded culture of "making do" with insufficient skills
Erosion of employer brand
The organisation that's tolerating skills gaps today will pay exponentially more for that tolerance over time.
“It’s quite incredible how clever some organisations are at concealing the true costs. I have seen public sector organisations normalise the practice of pairing under-skilled teams with expensive external consultants - a shadow team effectively. They’re paying more than double to compensate for a team that lacks the skills to perform their function. And they justify the waste by capitalising the effort or promising that the consultants will upskill their own team.”
Almost One-Third Report Skills Gaps Across the Whole Organisation
Perhaps most concerning: 29% of organisations report skills gaps across the entire organisation, not just in isolated pockets. This rises to 34% in large firms.
This isn't "we need a couple of software engineers" or "the marketing team needs stronger skills". This is workforce-wide skill deficiency that touches every function, every team, every strategic initiative.
The sectors most affected? Public administration and safety (55% report organisation-wide gaps), arts and recreation services (39%), agriculture (37%), and charities and not-for-profits (36%).
"When skills gaps are that widespread, you have to ask deeper questions," Williams observes. "Is this really just about individual skill deficits? Or does your organisation lack the fundamental capability to develop, attract, and retain skilled people? Often, it's the latter—and training individuals won't solve it."
Why "We Manage" Isn't the Same as "We're Succeeding"
The most dangerous phrase in organisational life: "We manage."
Yes, you manage. You work around it. You compensate. You get by. But at what cost?
The talented people who leave because they're exhausted from compensating for others' skill gaps
The strategic initiatives that never launch because workforce skills are insufficient
The innovation that dies because people lack the skills to execute it
The customers who choose competitors because service quality suffers from skill deficits
The psychological safety that erodes as skill gaps become undiscussable
"When I conduct capability reviews, leadership teams are often genuinely surprised by what independent analysis reveals," Williams reflects. "They see people working incredibly hard and assume they have the skills needed. What they miss is that people are working hard to compensate for skill gaps—their own and others'—that the organisation has no effective way to address. It is seen as just too hard."
It's Not Just a Training Problem
Here's where conventional thinking goes wrong: most organisations assume skills gaps are training problems. If people just had better skills, everything would work.
The Lindorff research reveals something striking: organisations know training exists as a remedy, yet only 38% actually use training and development as their primary strategy to address skills gaps.
Why the gap between knowing and doing?
"Why do only 38% use training to address skills gaps? My experience suggests it's because organisations have tried training, watched it fail to solve their skills problems, and quietly stopped," Williams explains. "They've learnt through expensive experience that training addresses individual skills but often fails to close persistent skills gaps when the organisation lacks the capability to develop, retain, and deploy skilled people systematically."
Without organisational capability to support skill development:
Training gets mis-targeted (teaching skills people don't need or can't apply)
Trained people leave (you develop them, competitors hire them)
Skills don't transfer to work (organisational systems or culture prevent application)
Training becomes what industry veterans call "spray and pray": spray lots of training around, pray some of it sticks and somehow closes the skills gaps
It rarely does—not because training is ineffective, but because skills gaps often signal deeper organisational capability deficits that training alone cannot address.
The Bottom Line
Seventy-five per cent of Australian organisations have significant skills gaps. Most have tolerated them for so long they've become invisible—or at least, accepted.
But tolerance isn't strategy. And acceptance isn't success.
The costs are real: productivity, profits, people, psychological safety, strategic capability, competitive position. They're compounding every day. And what you've normalised is costing you more than you realise.
The Lindorff research proves skills gaps exist and quantifies their damage. Two decades of consulting experience reveals that these skills gaps are often symptoms of deeper organisational capability deficits—in how you develop people, retain talent, structure work, deploy leadership, and build a learning culture.
The question isn't whether you have skills gaps—the research suggests you almost certainly do. The questions are: Why do these gaps persist despite everyone knowing about them? What organisational capability deficits are preventing you from closing them? And how much longer will you tolerate the damage?
"Skills gaps are critical to address—they're the foundation," Williams concludes. "But sometimes all the training in the world won't work because your organisation lacks the capability to develop, retain, and deploy skilled people. That's where the most revelatory and lasting solutions come from: examining and building the organisational capability that enables your workforce to develop and apply their skills effectively."
You can't fix what you've normalised. And you can't solve skills gaps without addressing the organisational capability that either enables or prevents skill development.
Next in this series: Why your internal teams can't diagnose skills gaps accurately (and what's really causing them)
Ready to move from tolerance to systematic skills development?
Book an independent skills gap review with Regional Capability Systems. We'll bring frameworks, sector benchmarking, and political independence—integrated with respect for your leadership judgment—to diagnose why skills gaps persist and build strategies that address root causes.
Visit www.rcap.com.au to discuss your organisation's skills gap challenges.
This article series is based on research by Professor Margaret Lindorff, "Skills gaps in Australian firms," Journal of Vocational Education and Training, 63:2, 247-259 (2011), combined with two decades of organisational capability consulting experience across Australian industries.
